# I.K. Merchants Pvt. Ltd. & Ors v. The State of Rajasthan & Ors

- **Citation:** 2025 INSC 418
- **Court:** Supreme Court of India
- **Decided:** 2025-04-01
- **Bench:** J.B. Pardiwala, R. Mahadevan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/i-k-merchants-pvt-ltd-ors-v-the-state-of-rajasthan-ors-38540
- **Pages:** 36

## Headnote

Issue arose as regards the appropriate rate of interest to be awarded
on the enhanced valuation of shares sold by the appellants to the
Respondent No.1-State in 1973 as determined by the High Court
and affirmed by Supreme Court.
Headnotes†
Code of Civil Procedure, 1908 - s.34 - Interest - Grant of
appropriate rate of interest in a commercial transaction - No
agreement between the parties relating to grant of interest for
delayed payment - In 1973, the appellants sold their shares in
Respondent No.2 to the Respondent No.1-State at Rs.11.50/- per
equity share - Suit filed by appellants in the High Court inter alia
for a decree for reasonable price of their shares - Preliminary
decree was passed for appointment of a CA firm to ascertain
the fair value of the shares when they were transferred by the
appellants to Respondent No.1, which valued the shares at
Rs.640/- per share - Valuation not accepted by respondents -
High Court affirmed the valuation of shares at Rs.640/- per
share with 5% simple interest p.a. - Issue relating to valuation
of shares has become final in view of dismissal of SLP (C) Diary
Nos.27115/2022 and 24887/2022 filed by Respondents - Matter
remanded to High Court - By way of the impugned judgment,
High Court upheld and reaffirmed the valuation of shares at
Rs.640/- per share as also the grant of 5% simple interest p.a. -
Challenge to - Presently, issue only as regards the appropriate
rate of interest to be awarded on the enhanced valuation of
shares:
Held: There has been a transaction of trade, viz. sale and purchase
of goods, which clearly implies a commercial transaction between
the parties - s.34 empowers the court to grant interest at three
* Author
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[2025] 4 S.C.R.
Supreme Court Reports
different stages of a money decree whereunder, inter alia the
court may grant interest on the total decretal amount from the
date of the decree until payment, at a rate not exceeding 6% p.a
unless otherwise specified in contractual agreements or statutory
provisions - However, if the claim arises from a commercial
transaction, courts may allow interest at a higher rate based on
agreements between the parties - Courts have the authority to
determine the appropriate interest rate, considering the totality of
the facts and circumstances in accordance with law - They have
the discretion to decide whether the interest is payable from the
date of institution of the suit, a period prior to that, or from the date
of the decree, depending on the specific facts of each case - In
the present case, there was no agreement between the parties
relating to grant of interest for the delayed payment - Respondent
No. 1 agreed to pay a fair valuation for the shares to the appellants,
but is yet to make the payment - Appellants having suffered a
delay of five decades in receiving the payment, are entitled to be
reasonably compensated by way of interest - In the peculiar facts
and circumstances, simple interest at the rate of 6% per annum
awarded from 8th July 1975, on the enhanced valuation of shares
till the date of decree and interest at the rate of 9% per annum from
the date of decree till the date of realisation - Impugned judgments
of the High Court modified. [Paras 12, 14, 15, 17]
Interest - Award of, to be guided by equitable considerations:
Held: Discretion to award interest, whether pendente lite or
post-decree is well recognized, its exercise must be guided by
equitable considerations - The rate and period of interest cannot
be applied mechanically or at an unreasonably high rate without
any rationale. [Para 16]
Public Interest - Commercial transactions - Terms if oppressive
or one-sided, constitutional courts can under Article 14 to strike
down such contracts or pass appropriate decrees or orders:
Held: "Public Interest" denotes a wider concept with its genus
rooted to the welfare of the public at large, with different species
attributable to individual and specific impact, depending upon
the concept and the subject under consi

## Text

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[2025] 4 S.C.R. 2753 : 2025 INSC 418
I.K. Merchants Pvt. Ltd. & Ors.
v.
The State of Rajasthan & Ors.
(Civil Appeal No(s). 4560-4563 of 2025)
01 April 2025
[J.B. Pardiwala and R. Mahadevan,* JJ.]
Issue for Consideration
Issue arose as regards the appropriate rate of interest to be awarded
on the enhanced valuation of shares sold by the appellants to the
Respondent No.1-State in 1973 as determined by the High Court
and affirmed by Supreme Court.
Headnotes†
Code of Civil Procedure, 1908 - s.34 - Interest - Grant of
appropriate rate of interest in a commercial transaction - No
agreement between the parties relating to grant of interest for
delayed payment - In 1973, the appellants sold their shares in
Respondent No.2 to the Respondent No.1-State at Rs.11.50/- per
equity share - Suit filed by appellants in the High Court inter alia
for a decree for reasonable price of their shares - Preliminary
decree was passed for appointment of a CA firm to ascertain
the fair value of the shares when they were transferred by the
appellants to Respondent No.1, which valued the shares at
Rs.640/- per share - Valuation not accepted by respondents -
High Court affirmed the valuation of shares at Rs.640/- per
share with 5% simple interest p.a. - Issue relating to valuation
of shares has become final in view of dismissal of SLP (C) Diary
Nos.27115/2022 and 24887/2022 filed by Respondents - Matter
remanded to High Court - By way of the impugned judgment,
High Court upheld and reaffirmed the valuation of shares at
Rs.640/- per share as also the grant of 5% simple interest p.a. -
Challenge to - Presently, issue only as regards the appropriate
rate of interest to be awarded on the enhanced valuation of
shares:
Held: There has been a transaction of trade, viz. sale and purchase
of goods, which clearly implies a commercial transaction between
the parties - s.34 empowers the court to grant interest at three
* Author
2754
[2025] 4 S.C.R.
Supreme Court Reports
different stages of a money decree whereunder, inter alia the
court may grant interest on the total decretal amount from the
date of the decree until payment, at a rate not exceeding 6% p.a
unless otherwise specified in contractual agreements or statutory
provisions - However, if the claim arises from a commercial
transaction, courts may allow interest at a higher rate based on
agreements between the parties - Courts have the authority to
determine the appropriate interest rate, considering the totality of
the facts and circumstances in accordance with law - They have
the discretion to decide whether the interest is payable from the
date of institution of the suit, a period prior to that, or from the date
of the decree, depending on the specific facts of each case - In
the present case, there was no agreement between the parties
relating to grant of interest for the delayed payment - Respondent
No. 1 agreed to pay a fair valuation for the shares to the appellants,
but is yet to make the payment - Appellants having suffered a
delay of five decades in receiving the payment, are entitled to be
reasonably compensated by way of interest - In the peculiar facts
and circumstances, simple interest at the rate of 6% per annum
awarded from 8th July 1975, on the enhanced valuation of shares
till the date of decree and interest at the rate of 9% per annum from
the date of decree till the date of realisation - Impugned judgments
of the High Court modified. [Paras 12, 14, 15, 17]
Interest - Award of, to be guided by equitable considerations:
Held: Discretion to award interest, whether pendente lite or
post-decree is well recognized, its exercise must be guided by
equitable considerations - The rate and period of interest cannot
be applied mechanically or at an unreasonably high rate without
any rationale. [Para 16]
Public Interest - Commercial transactions - Terms if oppressive
or one-sided, constitutional courts can under Article 14 to strike
down such contracts or pass appropriate decrees or orders:
Held: "Public Interest" denotes a wider concept with its genus
rooted to the welfare of the public at large, with different species
attributable to individual and specific impact, depending upon
the concept and the subject under consideration - It deals with
the impact of a policy decision on the society - Generally, public
interest is anathema to commercial transactions - However, by
exception, when the terms are oppressive or one-sided, they
[2025] 4 S.C.R.
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I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
are to be termed as unconscionable, arbitrary and by application
of externalities, public interest will have to lean towards the
individual who has been wronged, as such contracts are deemed
to take away the fairness, affecting the free consent required to
culminate into a valid contract - The constitutional courts, under
such circumstances will be armed with Article 14 to strike down
such contracts or to pass appropriate decrees or orders - In the
present case, the transaction, though commercial, is not between
two businessmen or entities; the State and its instrumentality are
parties to the contract with better bargaining or imposing authority;
and there was no public interest in offering a lesser sum - Further,
with the price fixed found to be unconscionable, this Court affirmed
the enhanced price fixed by the High Court. [Para 12]
Case Law Cited
Alok Shanker Pandey v. Union of India [2007] 2 SCR 737 : (2007)
3 SCC 545; Clariant International Ltd. v. Securities & Exchange
Board of India [2004] Supp. 3 SCR 843 : (2004) 8 SCC 524;
Thazhathe Thazhathe Purayil Sarabi v. Union of India (2009) 7
SCC 372; Rampur Fertiliser Ltd. v. Vigyan Chemicals Industries
[2009] 2 SCR 650 : (2009) 12 SCC 324; M/s Tomorrowland Ltd. v.
Housing and Urban Development Corporation Ltd., 2025 LiveLaw
(SC) 205 - relied on.
Central Inland Water Transport Corp. v. Brojo Nath Ganguly [1986]
2 SCR 278 : (1986) 3 SCC 156; Union of India v. Tata Chemicals
Ltd. [2014] 3 SCR 298 : (2014) 6 SCC 335; Fertilizer Corporation
of India Ltd. v. Coromandal Sacks Pvt. Ltd. [2024] 5 SCR 321 :
(2024) 8 SCC 172; Bernard Francis Joseph Vaz v. Government
of Karnataka [2025] 1 SCR 190 : Civil Appeal No. 17 of 2025;
Manalal Prabhudayal v. Oriental Insurance Co. Ltd. [2006] Supp.
4 SCR 666 : (2009) 17 SCC 296 - referred to.
List of Acts
Code of Civil Procedure, 1908; Constitution of India.
List of Keywords
Section 34 of Code of Civil Procedure, 1908; Interest; Commercial
Transaction; Valuation of shares; Enhanced valuation of shares;
Appropriate rate of interest on enhanced valuation of shares;
Reasonable price of shares; Appropriate interest rate; Grant of
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[2025] 4 S.C.R.
Supreme Court Reports
interest for the delayed payment; No agreement between parties
relating to grant of interest for delayed payment; Fair Valuation;
"Public Interest"; Share Valuation; Discretion to award interest;
Award of interest.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 4560-4563
of 2025
From the Judgment and Order dated 26.04.2022 and 02.05.2022
of the High Court at Calcutta in GA No. 6 of 2020 in APD No.
63 of 2013
Appearances for Parties
Advs. for the Appellants:
Ranjit Kumar, Gautam Narayan, Sr. Advs., Ashok Kumar Jain,
Pankaj Jain, Mrs. Meenakshi Jain, Bijoy Kumar Jain.
Advs. for the Respondents:
Shiv Mangal Sharma, A.A.G., Dr. Manish Singhvi, Sr. Adv., Milind
Kumar, Deepak Goel, Apurv Singhvi, Ms. Shalini Haldar.
Judgment / Order of the Supreme Court
Judgment
R. Mahadevan, J.
Leave granted.
2.
These appeals are filed against the judgments and orders dated
26.04.2022 and 02.05.2022 both passed by the Division Bench of
Calcutta High Court1 in G.A.No.6 of 2020 and A.P.D.No.63 of 2013
in C.S.No.467 of 1978. Vide order dated 26.04.2022, the High Court,
while upholding and reaffirming the valuation of shares done by
M/s. Ray & Ray at Rs.640/- per share, granted simple interest at 6%
per annum on the enhanced valuation of shares, however, rejected
the prayer of the appellants for enhancement of interest rates,
costs and damages, and accordingly, disposed of the said cases.
1
Hereinafter referred to as "the High Court"
[2025] 4 S.C.R.
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I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
Subsequently, vide order dated 02.05.2022, the High Court corrected
the rate of interest from 6% to 5% per annum. Both the orders are
assailed in these appeals, at the instance of the appellants herein.
3.
On 25.07.2022, when the appeals were taken up for consideration
by this Court, the learned counsel for the appellants confined the
prayer made herein to the grant of an appropriate rate of interest,
which was also recorded in the proceedings. In view of the same,
we proceed to deal with these appeals only to the limited extent
of grant of rate of interest for the difference in valuation of shares
of Respondent No.2 viz., Rajasthan State Mines and Mineral Ltd.,
formerly known as Bikaner Gypsums Ltd.2, which shares were sold by
the appellants to Respondent No.1 viz., State of Rajasthan, in 1973.
4.
The relevant facts giving rise to the controversy involved herein are
as follows:
4.1 Originally, the appellants preferred a suit being C.S.No.467
of 1978 before the High Court of Calcutta, and the same
was subsequently amended, praying for a decree for
Rs.4,34,21,553.00 against the Respondent No.1; in the
alternative a decree for reasonable price of the shares of
the appellants, after determination of such price by the High
Court; in the further alternative, cancellation of the transfer of
shares belonging to the appellants to the Respondent No.1 and
restitution of the original status and retransfer of those shares
to the appellants on such terms to be determined by the High
Court, and also interest and costs. On 14.08.2012, the learned
Single Judge of the High Court, while rejecting the valuation
reports produced by the parties, passed a preliminary decree,
the operative portion of which reads as follows:
"There shall be a preliminary decree directing
the defendants in particular the first defendant to
appoint anyone of the following firms of Chartered
Accountants, namely Price Water House, Ray & Ray,
Lodha and Company of its choice as the valuer for the
purpose of conducting an enquiry for ascertaining the
fair and proper value of the said shares of the plaintiffs
2
For short, "the Company"
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[2025] 4 S.C.R.
Supreme Court Reports
at the time when such shares were transferred to the
first defendant by the plaintiffs and upon conclusion
of such enquiry the plaintiffs shall be entitled to apply
in this suit for obtaining a final decree for the amount,
if found, due upon such enquiry.
However, the remuneration of the valuer shall be
borne entirely by the defendants or rather the first
defendant herein and the first defendant shall pay
the remuneration of the valuer as and when such
remuneration is payable or rather is agreed to be
paid by the first defendant and accepted by the
valuer. The plaintiffs shall be entitled to all the costs,
charges and expenses of the enquiry proceedings
before the valuer, certified for two counsel. Let the
report of the valuer be made and published within a
period of four months from the date of commencement
of the enquiry.
There will also be a decree for costs of the suit
assessed at Rs.1,50,000/- and the plaintiffs will be
entitled to the costs over and above the court fees
that the plaintiffs had to pay at the time of institution
of the suit.
Needless to mention that the plaintiffs will also be
entitled to interests on the final decree to be passed
on the valuation to be made by the valuer appointed
by the preliminary decree, if such valuation, however,
goes in favour of the plaintiffs."
4.2 Aggrieved by the aforesaid preliminary decree, the respondents
herein preferred A.P.D.No.63 of 2013, in which, the appellants
filed their Cross Objection. During the pendency of the
appeal, the High Court, vide order dated 20.08.2019, noted
that the dispute essentially was with regard to the valuation
of shares, and in order to arrive at a settlement, appointed
M/s. Ray & Ray Co. as valuer for the purpose of conducting an
enquiry and ascertaining the proper value of the shares of the
appellants as on the date, when such shares were transferred
to the State Government. It was further directed that such
valuation would be uninfluenced by previous valuation reports.
[2025] 4 S.C.R.
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I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
Accordingly, the valuer M/s. Ray & Ray valued the shares at
Rs.640/- per share and filed its report. However, the respondents
refused to accept the said valuation. As a result of the same, the
High Court proceeded to hear the matter on merits and passed
a final judgment and order on 28.04.2021. The operative portion
of the same reads as under:
"In those circumstances, this appeal and crossobjection are disposed of by declaring that the
respondents/plaintiffs are entitled to Rs.640/- per
share sold by them to the appellant and directing
that each of the respondents/plaintiffs be paid by
the appellant no.1 Rs.640/- per share of Bikaner
Gypsums Ltd. (subsequently Rajasthan State Mines
and Minerals Ltd.) sold by him to the appellant no.1
as valued by M/s. Ray and Ray less Rs.11.50/-
per share already received by him/her within eight
weeks of communication of this order. Considering
the appellant is the government of Rajasthan, the
respondents/plaintiffs shall only be entitled to interest
at the rate of 5% simple interest per annum without
yearly rests on the said amount from 8th July, 1975
till the date of payment.
The impugned preliminary judgment and decree
dated 14th August, 2012 is modified to the above
extent. In the facts and circumstances, the modified
preliminary judgment and decree shall be treated
as the final decree. The suit is decreed accordingly.
The application (GA 6 of 2020) is also disposed of
by this order."
4.3 Being dissatisfied with the aforesaid judgment and order
dated 28.04.2021, both Respondent Nos.1 & 2 filed two
separate appeals viz., CA.Nos.6145 and 6144 of 2021
[SLP (Civil) Nos.13905/2021 and 13606/2021] respectively,
and the appellants filed C.A.No.6146 of 2021 [SLP (Civil)
No.14330/2021]. By a common order dated 01.10.2021, this
Court allowed all the appeals by setting aside the order dated
28.04.2021 and remanding the matter to the High Court to
deal with the objections and cross objections on the issue of
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[2025] 4 S.C.R.
Supreme Court Reports
valuation alone, as per the report of M/s. Ray & Ray and to take
a view on the same. Pursuant to the clarification application
viz., M.A.No.1840 of 2021 in C.A. No.6146 of 2021 filed by the
appellants, this Court vide order dated 26.11.2021 inter alia
observed as follows:
".... On hearing learned counsel for parties, we are
not inclined to open a pandora's box once again
and are clear that we have remitted on the issue of
the valuation report. However, the consequences of
the same would be that the applicant(s) before us
would naturally have a right to agitate the issue of
interest and costs which is a sequitur arising from
the delay in the finalization of the amount payable
to the respondent(s). ..."
4.4 In light of the aforesaid orders, the matter was reheard by the
High Court and the impugned judgment and order came to be
passed on 26.04.2022, the operative portion of which, reads
as under:
"I am of the view that the valuer has given a very
reasonable opinion.
I uphold and reaffirm the valuation.
With regard to the claim of the respondents for
interest, because of the long pendency on the matter,
the interest burden on the Government of Rajasthan is
for a period of about 50 years on the above valuation.
Taking this length of time and the total interest burden
on the appellant No.1, in my view, 6% per annum
simple interest on the enhanced valuation of the
shares will more than adequately compensate the
respondents. We reject the prayer for enhancement
of the interest rate.
The appeal is disposed of accordingly.
The judgment and decree of this Court dated
28th April 2021 is reaffirmed."
Subsequently, the interest portion was corrected from 6% to
5% per annum, by order dated 02.05.2022.
[2025] 4 S.C.R.
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I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
4.5 With the above background, the appellants have come up with
these appeals before us.
5.
According to the learned counsel for the appellants, payment of
interest owing to the delay in remittance of the fair value of the
shares to the appellants is a right recognized in law. Further, the
principle underlying the award of interest on the monies entitled to
be recovered by a party is simply compensation for the time value
of money i.e., compensation for interdicting the investment of that
sum at the time when it was due to be paid. In support of the same,
the learned counsel relied on the following decisions of this court:
(i)
Union of India v. Tata Chemicals Ltd3, wherein it was held that
the obligation to refund money received and retained without
right implies and carried with it the right to interest.
(ii)
Fertilizer Corporation of India Ltd and others v. Coromandal
Sacks Private Ltd4, in which, it was held that 'neither a penalty
nor a punishment but the normal accretion on capital, due to the
wilful withholding of the payment towards the claim, resulting in
continuous injury until such payment is made or in other words,
until the claim is realized'; and
(iii) Civil Appeal No.17 of 2025 in SLP(C) No.10338 of 2023 titled
as 'Bernard Francis Joseph Vaz and others v. Government of
Karnataka and others', it was observed as follows:
"...it cannot be gainsaid that the appellants have been
deprived of their legitimate dues for almost 22 years
ago. It can also not be controverted that money is
what money buys. The value of money is based on
the idea that money can be invested to earn a return,
and that the purchasing power of money decreases
over time due to inflation. What the appellants
herein could have bought with the compensation in
2003 cannot do in 2025. It is, therefore, of utmost
importance that the determination of the award and
disbursal of compensation in case of acquisition of
land should be made with promptitude".
3
(2014) 6 SCC 335
4
(2024) 8 SCC 172
2762
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Supreme Court Reports
5.1 It is further submitted that the appellants were deprived of the
fair value of their shares, which were compulsorily acquired by
the State Government for a period of more than 50 years due to
the faulty valuation commissioned by it. Therefore, payment of
interest on the valuation which has been upheld till this Court,
follows as a matter of course.
5.2 The learned counsel also submitted that Section 34(1) of the
Civil Procedure Code explicitly provides that a rate higher than
6% can be granted in case of a money decree arising out of
commercial transactions. Explanation I to section 34(1) defines
a "commercial transaction" as one connected with industry, trade
or business of the party incurring the liability. In the present case,
the liability has arisen on account of compulsory acquisition by
the state Government of the shares of the appellants in Bikaner
Gypsums, which was renamed as Respondent No.2 and has
consistently earned revenues for the State Government being
a profit-making company between 1974 till 2020. However,
without any justification, the High Court awarded only simple
interest at the rate of 5% per annum, which will not compensate
the appellants for the time value of the cost of shares, and is
hence, whimsical and arbitrary.
5.3 It is further submitted that despite giving assurance to the
appellants that they will be allowed to make a representation
before the valuer by letters dated 27.04.1973 and 06.08.1973,
the Respondent No.1 rescinded on this assurance vide letter
dated 03.07.1974 and that, a copy of the valuation report
dated 28.08.1974 was not supplied to the appellants and
their objections thereto were not invited. Though appellant
no.1 requested to return the shares if a fair valuation was not
possible vide letter dated 10.04.1975, the respondents neither
conducted a fair valuation nor returned the shares. Further, the
respondents failed to comply with the order dated 20.08.2019 of
this Court, as a result of which, the time granted by this court for
submission of the report had to be extended on two occasions.
Even after dismissal of the appeals of the respondents by this
Court, the appellants have not been paid the principal sum,
till date. Thus, the respondents have not only breached the
contract, but also caused delay at every stage of proceedings
in making payment of sums legally due to the appellants.
[2025] 4 S.C.R.
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I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
5.4 It is also submitted that had the money payable by the
Respondent No. 1 been invested in any other shares, gold,
fixed deposit or land in the year 1973, the said money would
have been enhanced manifold. Since 1973-74 till 2020, the
Respondent No. 2, which is a profit-making company, earned
several thousand rupees as gross profit and hence, they are not
entitled to any sympathy on the ground of being State. Thus,
according to the learned counsel, there is no justification for
award of a rate of interest lower than commercial rates for the
fair value of the share of the appellants.
5.5 Referring to the decision of this court in Alok Shanker Pandey v.
Union of India5, it is submitted that during the relevant point of
time, the rate of interest was 15% and hence, the appellants
are entitled to receive interest at least @ 15%.
5.6 Thus, the learned counsel submitted that the appellants are
entitled to receive the principal of Rs.3,46,79,373/- with interest
@ 15% on monthly rest basis; and interest @ 15% on monthly
rest basis on the aforesaid amount till the date of realization of the
claim. In case, the respondents fail to pay the principal amount
and interest @ 15% on monthly rest basis, the Respondent
No.1 may be directed to pay a further interest at the rate of
15% as penal interest over and above the amounts to be paid
in terms of the above till the payment is made.
6.
On the other hand, the learned counsel for the Respondent No. 1 /
State of Rajasthan, submitted that the facts would clearly indicate that
the amount was neither in debt nor for any damages, which normally
entails interest. Due to gross mismanagement, the Respondent
No. 2 (company) was going down, and it ultimately got merged with
the State Government. The shareholders, who were responsible
for the mismanagement of the Company, are now going to get a
very handsome amount in terms of the valuation on 31.03.1973 at
a huge sum of Rs.640/- per share for a subscribed share price of
Rs.10/- per share against the original claim of Rs.70.50 per share.
6.1 Adding further, it is submitted that in the suit, the appellants initially
claimed only for Rs.70.50 per share, in 1978. Subsequently, they
5
(2007) 3 SCC 545
2764
[2025] 4 S.C.R.
Supreme Court Reports
sought amendment with regard to enhancement of valuation of
share, which was ordered in 2001, i.e., 23 years later. Thus,
the exorbitant interest sought in 2001 cannot be said to be
computed from the year 1973. It is also submitted that the
appellants / shareholders, who did not subscribe at Rs.10/- per
share for fresh infusion of capital, have now got the valuation
of Rs.640/- per share, on the same date and therefore, they
have not been prejudiced in any manner.
6.2 Denying the allegation that the shares of the appellants had
been compulsorily acquired by the State Government, the
learned counsel submitted that the events as unfolded during
1969 to 1973 would amply demonstrate that it is owing to
mismanagement of the Company that the State had to intervene
and infuse further capital in the Company. The State had infused
sufficient funds, but still the company could not be revived or
sustained by the then management. It is in this context that the
shares were acquired by the State. Therefore, it is not a case
of compulsory acquisition of shares, but a case of infusion of
capital, and getting equity in return just to keep the company
afloat; and the rate of interest has to be determined in the said
background only.
6.3 It is submitted that the second part of Section 34 states that the
interest from the date of decree till the date of payment cannot
exceed 6%. The Explanation states that the rate of interest may
exceed 6% p.a. if it is a 'Commercial transaction'. According
to the learned counsel, the State was not engaged in any
industry, trade or business and there was complete absence
of motive of profit in the action taken by them. In fact, it was
incurring losses, and the investment made to keep the lossmaking Company unit afloat cannot be termed as a 'Commercial
transaction'. Therefore, the interest rate should not exceed @
5% as determined by the High Court.
6.4 Referring to the decision of this Court in Manalal Prabhudayal v.
Oriental Insurance Co. Ltd.6, it is submitted that Appellate
Courts should not interfere with the discretion exercised by
the lower Courts to award interest unless the same is arbitrary
6
(2009) 17 SCC 296
[2025] 4 S.C.R.
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I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
and capricious. Hence, the High Court correctly exercised its
jurisdiction to award simple interest at 5% per annum, which
does not suffer from any infirmity.
6.5 It is also submitted that the High Court has reaffirmed the
judgment and decree dated 28.04.2021 which was set aside by
this court by order dated 01.10.2021, without any modification
and the same does not have any legal sanctity. Thus, the High
Court has not passed any specific order with regard to the interest
from the date of the institution of the suit till the date of decree,
and from the date of decree till the date of the payment. It has
merely stated that 5% p.a. shall be calculated. Therefore, the
order of the High Court relating to rate of interest is reasonable
and the same need not be interfered with by this court.
7.
In addition to the above submissions made on the side of the
Respondent No.1, the learned counsel for the Respondent No.2 /
Rajasthan State Mines and Minerals Ltd., submitted that the transfer
of shares to the State by the company in the year 1973 was for the
reason as the company was facing financial difficulties to run its
business and further, the shareholders were not possessing faith in
the company and therefore, the company decided to bring the public
issue at Rs.10/- per equity share, but the appellants were not ready
to purchase the shares even at such rate. Thereafter, the litigation
to decide the fair price of the share was initiated by the appellants
in 1978 by demanding a sum of Rs.70.50 per equity share, but later,
on the basis of valuation by a private valuer M/s. Naresh Lakhotia
& Company, amended their plaint and claimed Rs.874/- per share.
It is worth mentioning that the valuer M/s.Naresh Lakhotia & company
and M/s.Ray and Ray are not the valuer appointed by the ICAI. Thus,
the appellants are only entitled to the fair price of the share as on
April 1973 and not the interest thereon.
7.1 It is further submitted that there was no contract in respect of
payment of interest between the parties. In such circumstances,
section 34 of the Civil Procedure Code would govern the field,
which does not provide for any compound interest of any kind.
That apart, Section 34 clearly mandates interest @6% per
annum for the principal sum adjudged (both during pendency
and till date of payment). Therefore, the question of compound
interest does not arise.
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7.2 It is ultimately submitted that the appellants have already got
the price of their share at Rs.11.50 per equity share and they
are only entitled for the difference of amount as upheld by this
Court and therefore, the appellants are not entitled to higher
rate of interest than 5% awarded by the High Court.
8.
As a riposte, the learned counsel for the appellants submitted that
the Respondent No. 1 has attempted to make out a new case for the
first time through their reply, alleging that there was mismanagement
by the shareholders of the Respondent No. 2; that, the appellants
after a period of 23 years, claimed an exorbitant sum towards value
of shares, Respondent No. 2 was a loss-making company, etc.
8.1 The learned counsel further submitted that the respondents
never challenged the order dated 15.09.2001 granting leave
to the appellants to amend their plaint in CS No.467 of 1978,
but sought to urge that the proceedings were delayed due to
amendment. That apart, the contention that the Respondent
No. 2 was a loss making one, is utterly false and contrary to
the record; and the appellants have placed on record the profit
made by Respondent No.2 between 1974 till 2000, which comes
to Rs.40,165,790,819. It is also an incorrect statement that the
Government infused lots of fund during management of the
company by the shareholders including the appellants. According
to the appellants, other than giving one or two bank guarantees,
the Respondent No.1 had never funded the company. Thus,
according to the learned counsel, such new allegations are not
maintainable. All the issues between the parties had attained
finality except the issue of interest payable to the appellants,
which has been raised in the present appeals.
8.2 It is also submitted that the High Court vide order dated
28.04.2021 specifically directed that interest will be paid from
08.07.1975 till the date of payment. Therefore, the learned
counsel prayed this court to allow these appeals and grant
appropriate rate of interest to the appellants.
9.
We have considered the submissions made by the learned counsel
appearing for the parties and perused the records carefully and
meticulously.
10. The genesis of the case arises from a five-decade long litigation
concerning the valuation of shares of Respondent No. 2 which were
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2767
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
sold by the appellants to Respondent No.1. The issue relating to
valuation of shares has become final in view of dismissal of SLP (C)
Diary Nos. 27115/2022 and 24887/2022 filed by Respondent Nos.
1 and 2 respectively, vide orders dated 05.12.2022 and 12.12.2022
passed by this court.
11. As already stated, the only issue remains to be considered by us in
the present round of litigation is the rate of interest on the enhanced
valuation of shares as determined by the High Court and affirmed
by this court.
12. Taking note of the interest burden on the State for 50 years on the
valuation of shares, the High Court had granted simple interest @
5% per annum, by judgments and orders dated 26.04.2022 and
02.05.2022 which are impugned herein. According to the appellants,
the transactions viz., transfer of shares were commercial in nature.
Whereas, the respondents stated that they were not engaged in any
industry, trade or business for profit purposes and the investment
made was only to keep the loss-making Company unit afloat, and
hence, the transactions cannot be treated as commercial transactions.
Here, it cannot be disputed that there has been a transaction of trade,
viz. sale and purchase of goods, which clearly implies a commercial
transaction between the parties. The term "Public Interest" denotes a
wider concept with its genus rooted to the welfare of the public at large,
with different species attributable to individual and specific impact,
depending upon the concept and the subject under consideration.
It deals with the impact of a policy decision on the society. Generally,
public interest is anathema to commercial transactions. However,
by exception, when the terms are oppressive or one-sided, they
are to be termed as unconscionable, arbitrary and by application of
externalities, public interest will have to lean towards the individual
who has been wronged, as such contracts are deemed to take away
the fairness, affecting the free consent required to culminate into a
valid contract. The constitutional courts, under such circumstances
will be armed with Article 14 to strike down such contracts or to
pass appropriate decrees or orders. It will be useful to refer to the
judgment of this court in Central Inland Water Transport Corporation
Limited and another v. Brojo Nath Ganguly and another7, wherein,
it was held as follows:
7
(1986) 3 SCC 156 : MANU/SC/0439/1986
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"82. The position under the American Law is stated in
"Reinstatement of the Law- Second" as adopted and
promulgated by the American Law Institute, Volume II xx
which deals with the law of contracts, in Section 208 at
page 107, as follows:
"Section 208. Unconscionable Contract or Term
If a contract or term thereof is unconscionable at the time
the contract is made a court may refuse to enforce the
contract, or may enforce the remainder of the contract
without the unconscionable term, or may so limit the
application of any unconscionable term as to avoid any
unconscionable result."
In the Comments given under that section it is stated at
page 107:
"Like the obligation of good faith and fair dealing (S 205), the
policy against unconscionable contracts or terms applies
to a wide variety of types of conduct. The determination
that a contract or term is or is not unconscionable is made
in the light of its setting, purpose and effect. Relevant
factors include weaknesses in the contracting process
like those involved in more specific rules as to contractual
capacity, fraud and other invalidating causes; the policy
also overlaps with rules which render particular bargains or
terms unenforceable on grounds of public policy. Policing
against unconscionable contracts or terms has sometimes
been accomplished by adverse construction of language,
by manipulation of the rules of offer and acceptance or
by determinations that the clause is contrary to public
policy or to the dominant purpose of the contract'. Uniform
Commercial Code $ 2-302 Comment 1.... A bargain is
not unconscionable merely because the parties to it are
unequal in bargaining position, nor even because the
inequality results in an allocation of risks to the weaker
party. But gross inequality of bargaining power, together
with terms unreasonably favourable to the stronger party,
may confirm indications that the transaction involved
elements of deception or compulsion, or may show that
the weaker party had no meaningful choice, no real
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2769
I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
alternative, or did not in fact assent or appear to assent
to the unfair terms."
There is a statute in the United States called the Universal
Commercial Code which is applicable to contracts relating
to sales of goods. Though this statute is inapplicable
to contracts not involving sales of goods, it has proved
very influential in, what are called in the United States,
"non-sales" cases. It has many times been used either
by analogy or because it was felt to embody a general
accepted social attitude of fairness going beyond its
statutory application to sales of goods. In the Reporter's
Note to the said Section 208, it is stated at page 112:
"It is to be emphasized that a contract of adhesion is
not unconscionable per se, and that all unconscionable
contracts are not contracts of adhesion. Nonetheless, the
more standardized the agreement and the less a party may
bargain meaningfully, the more susceptible the contract or
a term will be to a claim of unconscionability."
The position has been thus summed up by John R. Pedan
in "The Law of Unjust Contracts" published by Butterworths
in 1982, at pages 28-29:
"...Unconscionability represents the end of a cycle
commencing with the Aristotelian concept of justice and
the Roman law iaesio enormis, which in turn formed the
basis for the medieval church's concept of a just price and
condemnation of usury. These philosophies permeated the
exercise, during the seventeenth and eighteenth centuries,
of the Chancery court's discretionary powers under which
it upset all kinds of unfair transactions. Subsequently
the movement towards economic individualism in the
nineteenth century hardened the exercise of these powers
by emphasizing the freedom of the parties to make their
own contract. While the principle of pacta sunt servanda
held dominance, the consensual theory still recognized
exceptions where one party was overborne by a fiduciary,
or entered a contract under duress or as the result of
fraud. However, these exceptions were limited and had
to be strictly proved. It is suggested that the judicial
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and legislative trend during the last 30 years in both
civil and common law jurisdictions has almost brought
the wheel full circle. Both courts and parliaments have
provided greater protection for weaker parties from harsh
contracts. In several jurisdictions this included a general
power to grant relief from unconscionable contracts,
thereby providing a launching point from which the courts
have the opportunity to develop a modern doctrine of
unconscionability. American decisions on Article 2. 302
of the UCC have already gone some distance into this
new arena. The expression "laesio enormous used in
the above passage refers to "laesio ultra dimidium vel
enormous which in Roman law meant the injury sustained
by one of the parties to an onerous contract when he had
been overreached by the other to the extent of more than
one-half of the value of the subject-matter, as for example,
when a vendor had not received half the value of property
sold, or the purchaser had paid more then double value.
The maxim "pacta sunt servanda" referred to in the above
passage means "contracts are to be kept".
83. It would appear from certain recent English cases that
the courts in that country have also begun to recognize the
possibility of an unconscionable bargain which could be
brought about by economic duress even between parties
who may not in economic terms be situate differently (see,
for instance, Occidental Worldwide Investment Corpn. v.
Skibs A/S Avanti 1976 (1) L Rep. 293, North Ocean
Shipping Co. Ltd. v. Hyundai Construction Co. Ltd. 1979
Q.B. 705, Pao On v. Lau Yin Long 1980 A.C. 614 and
Universe Tankships of Monrovia v. International Transport
Workers Federation 1981 (1) C.R. 129, reversed in 1981 (2)
W.L.R. 803and the commentary on these cases in Chitty on
Contracts, Twenty-fifth Edition, Volume I, paragraph 486).
84. Another jurisprudential concept of comparatively
modern origin which has affected the law of contracts is
the theory of "distributive justice". According to this doctrine,
distributive fairness and justice in the possession of wealth
and property can be achieved not only by taxation but also
by regulatory control of private and contractual transactions
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I.K. Merchants Pvt. Ltd. & Ors. v. The State of Rajasthan & Ors.
even though this might involve some sacrifice of individual
liberty. In Lingappa Pochanna Appelwar v. State of
Maharashtra and Anr. MANU/SC/0236/1984 : [1985]2
SCR 224 this Court, while upholding the constitutionality
of the Maharashtra Restoration of Lands to Scheduled
Tribes Act, 1974, said (at page 493):
"The present legislation is a typical illustration of the concept
of distributive justice, as modern jurisprudence know it.
Legislators, Judges and administrators are now familiar
with the concept of distributive justice. Our Constitution
permits and even directs the State to administer what may
be termed 'distributive justice'. The concept of distributive
justice in the sphere of law-making connotes, inter alia,
the removal of economic inequalities and rectifying the
injustice resulting from dealings or transactions between
unequals in society.